A ’recall clause’ for workers employed by businesses significantly hit by the coronavirus pandemic could help alleviate worker anxiety, and encourage them to take stopgap jobs that are urgently required to face the heath crisis, suggests a new study UCL study.
Most importantly, the measure would keep the economy ready to swiftly resume "business as usual" once the health emergency subsides.
The analysis, published as a VoxEU column and carried out with Yale University and the Federal Reserve Bank of Philadelphia, draws on research on the aftermath of the Great Recession of 2008-2009 in the US.
The researchers argue that policy-makers in the US, and around the world, adopt policies that provide insurance for businesses and do not fundamentally alter the fabric of the world economy. At the same time, they argue that significant temporary employment reallocation is needed to the face the emergency.
Professor Fabien Postel-Vinay (UCL Economics), said: "Governments and central banks in developed countries are hastily deploying aggressive macroeconomic policies of different shapes and types to fend off a global economic catastrophe caused by the COVID-19 pandemic.
"Despite the urgency, whether real or perceived, of these measures, it is essential to design these policies carefully. We have, at best, one shot to get this right. "
The analysis of the Great Recession draws a number of insights about business and employment trends during a crisis, including:
- Workers who lose their jobs, but are eventually recalled by their last employer, almost always return to the same occupation and experience no earning loss, whether they expected to be recalled (were on temporary layoff) or not.
- In contrast, workers who are permanently separated from their employer and are not recalled suffer a very significant loss in monthly earnings, ranging between 2% and 12% in impact depending on the ensuing duration of unemployment, and often change occupation and career.
- Longer-tenured workers are more likely to be recalled than more recent hires, and recalled workers stay longer at the firm thereafter than new hires.
The researchers recommend a two-armed policy approach for the US: 1) expanding Unemployment Insurance to help the most vulnerable businesses and 2) extending to employers zero-interest loans for fixed costs (such as rent and interest) that can be turned into grants, if they rehire former staff, when business returns to normal.
Professor Postel-Vinay add ed : "In a nutshell: we need to avoid blanket, untargeted help, but rather aim to create the conditions to preserve worker attachment to their old jobs and, once the crisis subsides, quickly restore the pre-existing allocation of employment to sectors and companies."
Although the research is focused on the US context, the researchers say that their insights could be useful for other countries.
The UK Government has put in place government-backed, subsidised loans of up to £5M to help small businesses weather the storm, and is offering wage subsidies for employees who find themselves unable to work, however the researchers say they lack measures to support the return to status quo.
Professor Postel-Vinay said: "In the UK, employers are encouraged to place workers on a leave of absence, which implies hiring them back at the end of the crisis, rather than laying them off, which is a good thing. Although, the job retention scheme does not prevent workers from taking up stopgap jobs, there seems to be a lot of confusion among both workers and employers about the unintended consequences.
"It should be made absolutely clear that furloughed workers are allowed, even encouraged, to take temporary jobs in high-demand sectors, without foregoing government help. This will be vital for a swift return to business as usual when this is over is."